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spk04: ladies and gentlemen thank you for standing by and welcome to the MMLP fourth quarter 2020 earnings call at this time all participants lines are in a listen-only mode after the speaker's presentation there will be a question-and-answer session to ask a question during this session you will need to press star 1 on your telephone please be advised that today's conference is being recorded If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Sharon Taylor, Chief Financial Officer. Thank you. Please go ahead. Thank you. And good morning, everyone. I'm joined by Bob Bondrant, President and CEO, Randy Tauscher, Chief Operating Officer, David Cannon, Controller, and Danny Cabin, Director of FP&A. Before we get started with our comments, I will remind you that management may be making forward-looking statements as defined by the SEC. Such statements are based on our current judgments regarding the factors that could impact the future performance of Martin, including facts and assumptions related to the impact of the COVID-19 pandemic, but actual outcomes could be materially different. You should review the risk factors and other information discussed in our SEC filings and form your own opinions about Martin's future performance. We will discuss non-GAAP financial measures on today's call. Please refer to the table in our earnings press release posted in the investor relations section of our website to find information regarding those non-GAAP financial measures, including a reconciliation of historical non-GAAP financial measures referenced in today's call to their corresponding GAAP measures. And now I will turn it over to Bob Bondurant.
spk01: First, I'd like to comment on last week's weather event in Texas and the impact it may have on our business in the first quarter. Generally, I'm very optimistic about the first quarter, but know this weather event will have some negative financial impact to our Q1 cash flow. This currently is hard to quantify, but will impact us financially in our land transportation segment due to ice roads and downtime from our refinery customers. Additionally, I want to commend our employees for their can-do attitude of working to see that our assets operated as best as they could during this weather event, focusing on safety and the health of all of our affected employees. Job well done to all. Now I want to start off by acknowledging that fourth quarter cash flow did not meet our internal forecast. The lower performance was primarily in two areas, one expected and one unexpected. We expected reduced cash flow performance in marine transportation due to the impact of the COVID-19 pandemic on refinery utilization. But the other significant negative impact to our cash flow was in our butane logistics business, which was not expected when we had our last earnings call in October. Primarily as a result of the weakness in these two areas, Our fourth quarter adjusted EBITDA was $17.4 million compared to $35.5 million in the fourth quarter of 2019. For the year, our adjusted EBITDA was $94.9 million compared to $108.3 million in 2019, primarily due to the negative impact of COVID-19 on refinery utilization and on the overall U.S. economy. Let me begin the discussion by focusing on our natural gas services business. For the fourth quarter, this segment had adjusted EBITDA of $2 million compared to $11.4 million a year ago. The significant majority of that difference was in our butane logistics business, and the most significant portion of this miss occurred in December. Three things happened in December that converged to negatively impact our butane logistics business. there was significant backwardation in the market. Number two, this caused refineries to slow their butane purchases in hopes of getting a much cheaper price in January compared to December. And number three, the reduced amount of butane volume we sold to our refinery customers because of this backwardation meant there was not enough fiscal sales volume to cover our existing hedge position. Now let me describe these three points in more detail. In the month of December, price for normal butane began at 80 cents per gallon and moved to $1.14 per gallon by the end of the month. This rising price would normally be good for us because of our inventory and storage. However, the January futures price was significantly backwardated to the December market price. The December-January backwardation began the month at 12 cents per gallon and grew to 32 cents per gallon by the end of the month. and the backwardation for the entire month averaged 17 cents per gallon. Because of this, our refinery customers made a decision to buy significantly fewer butane barrels than normal in December and moved those purchases to January and February. Because of their decision, the volume sold out of storage in December was only 33% of the historical average sold to our refinery customers in December. Additionally, we had hedged 73% of our historical December inventory sales volume. Because we only sold 33% of normal December volume, we did not have enough physical sales at higher market prices to cover our hedge loss position. Since the butane market rose significantly in December, we realized hedge losses of $5.8 million, of which $4.1 million had no physical corresponding sales, negatively impacting our December and total fourth quarter butane logistics cash flow. Including the $4.1 million of hedge losses that had no corresponding physical sales, the impact of selling only 33% of normal December volume impacted our butane books by approximately $5 million in December. Now looking toward the first quarter of 2021, which we will complete the sales season of normal butane to our 500 customers, we are extremely optimistic about a significant increase in cash flow when compared to the fourth quarter. Three things have happened so far this quarter. First of all, the Mont Bellevue price of butane for January averaged $0.88 per gallon, and the price for February has so far averaged over $0.94 per gallon. We do have some hedges in place that are at significantly higher prices than our fourth quarter hedge prices, but unlike the fourth quarter, we feel very confident our physical volume sold will be greater than our hedge volume. Because we currently believe the first quarter butane cash flow will be strong as a result of current heavy refinery volume demand, and despite our weak fourth quarter cash flow, the anticipated cash flow for butane logistics over the entire sale season of October through March will should in total be what we internally forecasted for the fourth quarter of 2020 plus the first quarter of 2021. However, unlike our original internal forecast, the significant majority of the actual butane cash flow will be realized in the first quarter of 2021 instead of the fourth quarter of 2020. Now I would like to discuss the two business segments that have been primarily negatively affected by the COVID-19 pandemic through reduced refinery utilization. The first is our transportation segment. Our total adjusted EBITDA in the transportation segment was $1.7 million in the fourth quarter compared to $9.1 million a year ago. Our land transportation had adjusted EBITDA of $3 million in the fourth quarter compared to $4.7 million a year ago. As our mileage was down 13%, and our daily load count was down 11% in the fourth quarter compared to a year ago. Fundamentally, this decrease in mileage and load count was driven by reduced factory refinery utilization, which averaged 77% this fourth quarter compared to 91% in last year's fourth quarter. Additionally, the lack of butane demand from storage to refineries in the fourth quarter due to price backwardation, also had negatively impacted our load count. Our marine transportation business has been severely impacted by COVID-19 and its impact on refinery utilization. We had negative adjusted EBITDA of $1.3 million in the fourth quarter compared to positive $4.4 million a year ago. Our third-party utilization was only 41% in the fourth quarter compared to 98% a year ago as a result of COVID-19 and its negative impact on refinery utilization. As a result, we have taken steps to eliminate some of our fixed costs by releasing underutilized lease vessels and optimizing our owned assets. Looking toward the first quarter of 2021 in our land transportation business, we are expecting and have been experiencing a slight increase in our daily load count compared to the fourth quarter. Therefore, subject to last week's weather event, we believe we will see an improved cash flow in land transportation in the first quarter compared to the fourth. Turning to marine transportation, although the utilization of our fleet of dirty inland barges is improving, The outlook for marine transportation in Q1 continues to be weak. Our fleet of clean tows remain out of service, but we have recently seen some interest in spot charters for these clean tows. Now, as refinery utilization slowly improves, we feel our clean barge fleet will begin to be placed back into service. Looking forward, we believe due to the COVID-19 vaccine rollout, we should see improved refinery utilization beginning in early summer. This should increase demand for both our land and marine transportation services. The second segment that has been negatively impacted by COVID through reduced refinery utilization was our sulfur services segment. Although total sulfur services segment adjusted EBITDA was $7.4 million in the fourth quarter for both 2020 and 2019, the mix between the pure sulfur side of the business and our fertilizer business varied significantly. In our pure sulfur side of the segment, adjusted EBITDA was $2.4 million in the fourth quarter compared to $3.9 million a year ago. This decline was primarily driven by the business interruption proceeds of $1.2 million we received last year in the fourth quarter. Also, our daily sulfur volume into our Beaumont terminal facilities was 5% lower than the fourth quarter a year ago. Looking toward the first quarter, subject to last week's weather event, we are forecasting a slight improvement of sulfur volumes into our Beaumont facilities because of slightly increasing refinery utilization. On the positive side of our sulfur services segment, our fertilizer business had adjusted EBITDA of $5 million in the fourth quarter compared to $3.5 million a year ago. Fertilizer sales volume was up 44% in the fourth quarter compared to last year as agriculture commodity prices, particularly corn, are higher this year. At the end of 2020, corn was $4.84 per bushel compared to $4.11 per bushel a year ago. We feel based on forecasted corn acres to be planted that the first quarter cash flow performance from our fertilizer business will be quite strong, and we look for an exceptional overall year from this group. Finally, our terminal and storage segment, which has had minimal impact of cash flow from the COVID-19 pandemic, primarily due to long-term fixed fee contracts, was our largest cash flow provider in the fourth quarter, as adjusted EBITDA was $10.6 million compared to $11.5 million a year ago. The decline between quarters can be attributed to our shore-based terminal business, as its adjusted EBITDA was $0.1 million in the fourth quarter compared to $1 million a year ago. This reduction in cash flow was a result of soft Gulf of Mexico drilling activity, which was driven by weaker oil prices throughout 2020. This has negatively impacted shore-based terminal revenue due to reduced diesel volume throughput and reduced throughput rates from a year ago. Now looking toward the first quarter, we should see similar cash flows in our termling segment when compared to the fourth quarter due to the long-term fixed fee contracts that support this business segment. I will now turn the call back over to Sharon to discuss our balance sheet, capital resources, and our 2021 guidance.
spk04: Thanks, Bob. I have just a few brief comments on balance sheet metrics, liquidity, and capital allocation before I move to our 2021 guidance. At year end, the total of our long-term debt outstanding was $526 million. That consisted of $148 million drawn on our $300 million revolving credit facility, $3 million in capital leases, and $375 million of one-and-a-half lien and second lien notes due 2024 and 2025, respectively. We also had $29 million of short-term senior unsecured notes that matured this February, which we redeemed using revolver availability. During the quarter, we repaid $57 million of revolver outstandings. Of that amount, approximately $22 million was from proceeds related to the sale of our mega lubricants assets in late December. However, Our adjusted leverage ratio increased quarter over quarter as our trailing four-quarter EBITDA now contains a majority of quarters where earnings have been negatively impacted by the COVID-19 pandemic. So while debt has been reduced, so has EBITDA, and as a result, leverage increased to 5.36 times. Further. We expect leverage to remain elevated until we enter the second half of 2021 and then begin to lower as the economy recovers and the quarters where EBITDA was impacted by COVID are no longer a component of the leverage calculations. And regarding the other piece of the equation, debt levels, our priority remains to optimize the utilization of our assets, increasing free cash flow, which will be reused to reduce debt and strengthen the balance sheet. For the fourth quarter, our distributable cash flow was $0.8 million and approximately $40 million for full year 2020. As a reminder, our revolving credit facility covenants mandate that our distribution not be increased from the current $0.02 annually until our leverage drops below 3.75 times. Turning to capital expenditures, in the fourth quarter, we spent roughly $3.1 million in maintenance CapEx and $1.7 million in growth CapEx, bringing our 2020 totals to $11.6 million for maintenance and $10.8 million for growth. And while growth CapEx is in the middle of our guidance range, maintenance CapEx was below the range by 17%. The majority of that will be carried over to 2021 as we spend the capital to ensure the safety and reliability of our assets. Now I'll speak to 2021 guidance, which you can find on page six of the slide deck linked in our press release or going to the investor relations section of our website under events and presentations. For now, we will continue to issue guidance in an annual range, but intend to provide greater detail into each business segment as soon as the economy begins to recover and we return to pre-COVID normal. For 2021, we expect EBITDA to range between $95 and $102 million. Maintenance capital expenditures are between $17 and $19 million, and that estimate does include a turnaround at our Sackover refinery. We expect growth capex of between $4 and $5 million, leading to distributable cash flow of $29 to $34 million and adjusted free cash flow of $22 to $26 million. Our assumptions for 2021 guidance begin with the premise that with wider distribution of a vaccine, we will see refined product demand increase as we enter the second half of the year, driving refinery utilization to pre-COVID norms. we view both the butane and the fertilizer businesses positively. As you heard Bob say earlier, butane sales have been strong so far in the first quarter of 2021, with butane prices rising since year end. And our fertilizer outlook is bolstered by rising prices across the board as global levels of corn supply are tightening. Specific to our fertilizer assets, Corn yields were down last year, so the corn stockpile is dwindling, while corn prices and forecasted acres for corn planting are rising in 2021, all of which creates tailwinds for that business. On the other hand, we view the marine transportation business to be extremely challenging as refinery utilization rates have tested the inland marine market, and we see that continuing until utilization rates improve to historically normal levels. This concludes our prepared remarks for this morning, and I will now turn the call back to the operator for Q&A. Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from Salman Ekiel with CFO. Please go ahead.
spk02: Hi, guys. This is Will on for Salman. Hope all is going well following the weather in Texas. And, Bob, congrats on officially stepping into the new role. First question is just around guidance. Besides, you know, you guys specifically mentioned vaccine distribution, the economy continuing to open. Can you share any other meaningful drivers that could put you toward the high end or, you know, opposite, you know, the low end of your range?
spk01: Well, I'll comment first and open it up to others if they would like to comment. I think there's, as we saw in the fourth quarter, there is variability in our butane business. And so that is sometimes a bit harder to predict. And if we have a... More normal to a better than normal butane year compared to historical, I think we'd be at the high end of the range. The other will be when does marine really kind of kick into cash flowing? Does it really begin in the second quarter or the third quarter? Our vision is more in the third quarter, more in the summer range. So to the extent that can improve, And there is a little bit of hope there, and I'll just leave it at that, that it could improve quicker. That would be the other driver to be at the higher end of the range. I think everybody's shaking their head in agreement with me. So those are the two areas probably.
spk02: Okay. That's helpful. Can you guys share just where you are percentage-wise in terms of your hedge volumes for 2021?
spk01: Yeah, for 21, Randy, you have that kind of figured, I think, what we're going to sell versus what's left on our hedges.
spk00: Yeah, we didn't have many hedges in January, and the price settled in January at $0.88. So January looks like that's going to be a very strong month. We do have quite a few hedges on in February. anticipated sales, somewhere around 60 to 70% of our anticipated sales we have hedged. But we put those hedges on primarily in January if the prices had already moved up because we had removed our February hedges that we had earlier in the year at the much lower prices.
spk02: Got it. Okay. And then last question, how do you guys view your portfolio going forward? Are there any more non-core type assets that you guys may try to capitalize or monetize on?
spk04: Yes. So we are still looking, as you know, to deliver our balance sheet as quickly as possible. So to the extent that we do have a non-core asset that we receive a good multiple for, we are still looking at opportunities like that.
spk02: Okay. And then any specific, within any specific segment, that you guys might be looking toward spinning off?
spk01: Just anything that's not directly related to refinery services. We've really made a push toward moving our company that way. So if it isn't directly tied to refinery services, those would be more apt to be considered.
spk02: All right. Thank you very much. Have a good day. Thank you. Thank you.
spk04: As a reminder, to ask a question, it is star 1 on your telephone. Your next question comes from Patrick Fitzgerald with Baird. Please go ahead.
spk03: Hi, guys. How much, just a clarification, how much does mega lubricants, how much EBITDA was in the 2020 numbers?
spk04: So for 2020, we actually had guided around $1.1 million just for the mega lubricant aspects. That came in at about $315,000. I do want to quantify that or clarify that a piece of our mega lubricants business resides within our land transportation and our marine transportation. So that number that I gave you did not include that piece.
spk03: Okay. So you sold that. $315,000 of EBITDA this year for $21 million, roughly?
spk01: It would be higher because of the cash flow that was thrown off in the marine business and the MTI, mountain transport trucking business. So it's roughly $3 million of EBITDA that we sold on historical basis.
spk03: Okay. And then some of that was inventory, right?
spk01: Yes. Of the sales proceeds, I think it was roughly a little over $3 million of inventory. Is that right? Yes.
spk03: Yes.
spk01: Correct.
spk03: Okay. All right. And then, you know, are there any other – previous caller asked a similar question, but are there any other deleveraging – asset sales that could potentially help you with your, you know, you're getting somewhat tight on your maintenance covenants, especially after the third quarter of this year. So I guess, you know, is anything like that on the rising and how do you plan to deal with that if, you know, refinery utilization isn't quite as robust as you have modeled out here?
spk04: I think for the first part of your question, We are having ongoing discussions related to asset sales that will help with the deleveraging process, and we really don't want to get into other detail around that. To your second question, we have a very supportive bank group. As we move through the first quarter and see how butane sales go as far as moving from fourth quarter to first quarter as we deal with this winter event, and then as we look to the vaccinations being rolled out quicker and the economy recovering faster, we're monitoring those covenant levels and we would address it with our banks if we believe we need to do that.
spk03: Okay. Thank you for that. And then, you know, just I'll have to go back through the call to try to understand the explanation. on the butane business in the fourth quarter. But I guess one thing I kind of took away was maybe unhedged, it would have been $10 million higher in the fourth quarter. Is that fair?
spk00: That's probably pretty close. It'd probably be high single digits higher if we wouldn't have had hedges in the fourth quarter. The one thing that impacted our fourth quarter This year, different than other years, the volumes were much lower in sales in the fourth quarter this year relative to previous fourth quarters. But high single digits is approximately where we would have been on hedge. That's correct.
spk03: Okay. All right. Thanks a lot.
spk04: Thank you. There are no further questions at this time. I will now turn the call back to Bob Bondurant, President and CEO, for closing remarks.
spk01: Thank you, and thanks to everyone for your participation today. To reemphasize, our near-term goal continues to be reducing our debt to a target level of 3.75 times our annual cash flow by using pre-cash flow to execute this strategy. Subject to the winter event of last week, we feel very optimistic about our first quarter cash flows, especially in our butane and fertilizer businesses. Now I would like to take a moment to make a comment about the coming energy transition strategy from hydrocarbons to renewables. I believe this transition will be over a very long period of time and also believe Our geographic footprint and the long-term relationships we have serving some of the largest and most sophisticated refiners in the world positions our company well for the future. Here at Martin, we are and will continue to be committed to excelling in safety and environmental stewardship through operational excellence. In the coming year, we intend to speak more to the internal priorities and strategies that govern sustainability within our organization and the communities we work in and around. Thank you again. This concludes my remark.
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